Airservices Aust v Ferrier

[1995] HCATrans 307

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S80 of 1995

B e t w e e n -

AIRSERVICES AUSTRALIA

Appellant

and

IAN DOUGLAS FERRIER and DESMOND WILLIAM KNIGHT

Respondents

BRENNAN CJ
DAWSON J
TOOHEY J
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON MONDAY, 23 OCTOBER 1995, AT 2.19 PM

Copyright in the High Court of Australia

MR P.A. KEANE, QC:   May it please the Court, I appear with my learned friend, MR D.J.S. JACKSON, QC and MR J.C. SHEAHAN for the appellant.   (instructed by Mallesons Stephen Jaques)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR J.E. THOMSON for the respondents.   (instructed by Blake Dawson Waldron)

BRENNAN CJ:   Yes, Mr Solicitor.

MR KEANE:   Your Honours have, I think, in front of you, copies of our outline of submissions.

BRENNAN CJ:   Perhaps you could give us some time to have a look at them, Mr Solicitor.

MR KEANE:   Thank you, your Honours.  I should mention one matter at the outset.  Your Honours will see that the heading on the outline is different from the title of the action on the record.  That is a consequence of the Civil Aviation Legislation Amendment Act 1995 and, in particular, sections 9 and 11 whereby the assets and liabilities of what used to be the Civil Aviation Authority have been transferred to the entity Airservices Australia and by section 11(b), which operates of its own force to substitute impending proceedings the entity Airservices Australia for the Civil Aviation Authority. I do not think there is any order your Honours need to make. I think it is just simply recognising the effect of the statute.

BRENNAN CJ:   You have nothing to say about that, Mr Jackson?

MR JACKSON:   No, your Honour.

MR KEANE:   Your Honours, the case concerns the operation of section 122 of the Bankruptcy Act made applicable in relation to the liquidation of Compass Airlines Pty Ltd by section 565 of the Corporations Law which makes void against a trustee in bankruptcy, or a liquidator, a payment made by an insolvent person in favour of a creditor where the payment has the effect of giving a creditor a preference, priority or advantage over other creditors and the payment is made within six months before the presentation of the petition on which the debtor became bankrupt.  And, in particular, the appeal gives rise to two issues:  firstly, whether the effect of the payment as a preference can be determined without reference to fresh value supplied to the debtor by the creditor, whereas, as a matter of business, the fresh value is a consequence of the payment; and, secondly, whether a payment to a creditor entitled to secure payment of that indebtedness, as was the case here by reason of provisions for the imposition of statutory liens, whether such a payment can be said to prefer that creditor over unsecured creditors. 

Your Honours, the material facts are largely not controversial.  We can state very shortly most of them.  We need to take your Honours briefly to the facts later on in relation to the characterisation which the Full Court placed on the dealings between Compass and the Civil Aviation Authority.  That might take us a few moments but the principal material facts are largely not in controversy.  The Civil Aviation Authority was established under the Civil Aviation Ac, 1988 to provide services and facilities to the aviation industry and during 1991, it provided services to Compass Airlines.

On 20 December 1991, Compass filed an application seeking an order that it be wound up.  It was wound up by an order of the Federal Court on 10 July 1992; the respondents are the liquidators of Compass.  From December 1990, Compass operated an airline, in the course of which services were provided daily by the appellant to Compass in respect of four categories of service:  terminal navigation, en route navigation, rescue and firefighting and meteorological information.  The appellant was entitled to charge for these services.  From July 1991, each of Compass’s aircraft averaged approximately 200 flights per month incurring four separate charges in respect of each of these categories we have mentioned in respect of each flight.  So that there was about 3,200 separate charges incurred each month.

The appellant invoiced Compass as a matter of practice on a monthly basis in respect of these services.  The monthly invoice showed particulars of each charge for each flight by each aircraft for the just completed calendar month.  The basis for the charges and the imposition of penalties for late payment is explained in the judgment of the Full Court in volume 6 at page 1176, lines 10 to 30.  Your Honours will see that paragraphs 27 and 28, commencing at line 10, deal with the recovery of charges.  Paragraph 29 of the relevant determination dealt with the imposition of penalties and the effect of that is explained over the page at 1177, commencing at line 5 by way of reference to the example of the month of May.  The charges for services provided during that month were the subject of an invoice delivered at the beginning of June which asserted the amount due and payable on 1 June.  Under paragraph 29 of the determination, Compass was liable to pay interest if that amount was not paid by 29 June.

With each monthly invoice, the appellant included a statement of account on the front of the invoice showing for each aircraft operated by Compass the outstanding balance of charges at the beginning and end of the month, including the accrued penalties.  The preference period commenced on 20 June 1991.  The amount due on 1 July 1991 ‑ that is to say, shortly after the commencement of the preference period ‑ was $4.3 million, approximately.  The average monthly charge for services rendered thereafter was approximately $3.1 million per month.

Compass did not pay at the same rate that the debt increased so that, notwithstanding the payments made during the preference period, the monthly balance of the account increased with the result that, as at 20 December 1991, the total balance owing by Compass to the appellant was $10.4 million.  On some, but not all occasions, but certainly on a significant number of occasions which the Full Court considered to be significant, Compass made payments which were appropriated to, or were in the same amounts as, prior months’ invoices, or parts of prior months’ invoices split, as they were, between various aircraft.

Throughout the preference period under the Civil Aviation Act, the Civil Aviation Authority had the power to impose statutory liens over Compass’s aircraft in respect of unpaid charges with one minor and temporary exception.  At the end of November 1991, the appellant refrained from imposing those statutory liens.  It did so at the request of Compass and it did so at the request of Compass on the footing that both parties understood that, in the event that liens were imposed, the likelihood would be that trading would cease on the footing that the leases under which Compass held and operated its aircraft had default provisions, the exercise of such liens amounting to events of default which would have entitled the lessors to retake the aircraft and bring Compass’s operation to a standstill.  Your Honours, those are the facts which are not controversial, as we apprehend the case. 

The appellant’s principal submissions in relation to the question of the nature of the connection between payments and the provision of fresh value are really based on the concept of a running account, the term “running account” being used as Sir Garfield Barwick said for want of a better description, for want of better nomenclature, developed in judgments of this Court in Richardson v Commercial Banking Company of Sydney, Rees v Bank of New South Wales and Queensland Bacon v Rees in relation to whether a payment has the effect of conferring upon the payee a preference, priority or advantage over other creditors.

We do need to take your Honours to some of the passages from those judgments; they are somewhat lengthy.  We have collected those passages to which we wish to refer in a document which expands the submissions made in our outline.  Hopefully, it will save some time in reading these passages and in assisting us to develop our submissions by reference to that expanded outline.  May we hand that to your Honours? 

BRENNAN CJ:   Thank you.

MR KEANE:   The first three paragraphs we have dealt with; may we take your Honours to paragraph 4 which contains the first of the passages to which we wish to refer.  The first of the passages in paragraph 4(a) has been excerpted from pages 129 to 135 of the Commonwealth Law Report.  The point of the first of these passages is, firstly, to the issue to which section 122 gives rise, is one of effect, not intention.  The relevant effect is the ultimate effect, not the temporary effect of the payment.  One can gauge the ultimate effect of the payment only by looking at those payments with which it is connected and the question, of course, is what is the sufficient connection?

BRENNAN CJ:   I am not quite following that.  What do you say, Mr Solicitor?  What is the connection to be?

MR KEANE:   Your Honour, this passage makes the point that one is concerned to identify the effect referred to by section 122, that is whether the payment has the effect of giving a creditor a preference, priority or advantage.  In some cases, one does not look at the payment in isolation from other payments with which it is connected, or other events with which it is connected or one may be able to see it as an integral part of a total transaction.

BRENNAN CJ:   As at what time is this question asked?

MR KEANE:   At the time of the liquidation.  In the passage cited from Richardson in the second sentence at the top of page 3 of our outline, your Honour will see it said:

Section 95 supposes a bankruptcy, and it is in relation to that bankruptcy that the question arises whether, over the other creditors, a preference priority or advantage has been given to the particular creditor.

And then there is reference to section 52(c) which, in the 1924 Act, was the section concerned to make the giving of a preference an act of bankruptcy.  And the court there refers to that bankruptcy as being a hypothetical one as opposed to the real one under section 95 which was the precursor, although in the same terms as section 122(1).

BRENNAN CJ:   The Full Court seemed to think that the question was to be determined at the time of the payment.

MR KEANE:   By supposing a hypothetical liquidation as at that time.

BRENNAN CJ:   Yes.

MR KEANE:   I am not sure, your Honour, whether, at the end of the day, the resolution of that difference of views really resolves the problem here.  The difficulty with that approach of the Full Court, though, is that it seems inconsistent with the notion that one gauges the effect of a payment by looking at those other payments with which it is connected, which seems to be clearly what the Court contemplated in Richardson.  Richardson plainly seems to contemplate a retrospective view.

TOOHEY J:   I just wondered about the sentence immediately preceding the one that you read to us, the one that begins at the top of page 3:

It must be the ‘effect of giving the creditor a preference, a priority or advantage over the other creditors’:  it is then void in bankruptcy if the sequestration is within six months.

It seems to suggest a focus on the time of the payment and then possible avoidance of the payment if the sequestration takes place within the requisite period.

MR KEANE:   Except, your Honour, in the next sentence, it says:

Section 95 supposes a bankruptcy, and it is in relation to that bankruptcy that the question arises ‑

and then, further, your Honours, in the next paragraph:

The second thing is that the effect is a consequence of the payment and that where the payment forms an integral, an inseparable, part of an entire transaction its effect as a preference involves a consideration of the whole transaction.....In considering whether the real effect of a payment was to work a preference its actual business character must be seen and when it forms part of an entire transaction which if carried out to its intended conclusion will leave the creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference.  Nor can it matter that in the particular circumstances, whether because of illegality or for any other reason, the law could not be invoked if the creditor did falsify the understanding or expectations of the debtor which formed the basis of the payment.  If the creditor does carry on his relations with the debtor on the intended footing and so obtains in the result no preference priority or advantage over other creditors from the payment, the fact that it was open to him, without exposing himself to any legal remedy at the suit of the debtor, to interrupt the course of dealing or the progress of the transaction and thus secure for himself a preference, is not enough to show that the payment had the effect of giving such a preference priority or advantage.  For ex hypothesi that was not its final effect in fact.

So, your Honours, it seems to be being said there that the ultimate effect of a payment which involves an appreciation of its business character and that is to say, in our respectful submission, whether it is referrable to a continuing trading relationship rather than to terminating a trading relationship.

TOOHEY J:   But is that the criterion that marks it out?  Is that what is meant by “entire transaction”, namely a consideration of all dealings between the parties if there is more than one?

MR KEANE:   Your Honour, it is put in two ways in the authorities in this respect.  One looks at the entire transaction or one looks at payments that are connected if they are sufficiently connected as in a running account, to use the language of Sir Harry Gibbs in Re Weiss.  So that one is looking at language which speaks of an entire transaction or a series of payments, a series of debits and credits sufficiently connected.  Now, of course, to say “sufficiently connected” begs the question, sufficient for what purpose?

TOOHEY J:   As does “entire transaction”, I suppose.

MR KEANE:   Quite.  And, your Honour, that is why we say, with respect, that Sir Garfield Barwick in Queensland Bacon v Rees used the language, for want of better nomenclature, a running account.  Because his Honour was seeking to identify a conception common to entire transaction or connected debits and credits, for the purposes of the bankruptcy legislation, for the purposes of determining whether the statutory language was met, whether there was, by a payment, an effect of conferring a preference, priority or advantage.  Because if the effect of a particular payment is temporary only and it was always contemplated that it would only be temporary, then one can say that that is not the effect which the Court in Richardson said the payment had to have in order to attract the operation of section 95, as it then was, of the 1924 Act.

If we could invite your Honours to read on, in our excerpt from Richardson to the top of page 4 where what the Full Court described as the homely example of the:

debtor who pays something off his grocer’s account in order to induce the shop keeper to give him further supplies of groceries can hardly be held, as it seems to us, to give the grocer a preference, if that was the clear basis of the payment.  If the grocer credited the money as a payment for the future deliveries instead of the past deliveries of groceries he would in the end be in exactly the same position and yet he could not be attacked as having received a preference.  But without stating any principle with an application beyond the facts of this case, it is enough to decide that the payments into the office account possessed in point of fact a business purpose common to both parties which so connected them with the subsequent debits to the account as to make it impossible to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed ‑

And to come back to your Honour Mr Justice Toohey’s question, this is where one sees the language of a whole transaction, the whole arrangement, sliding into the language of sufficiently connected debits and credits.

TOOHEY J:   But in that situation, would the provision in section 122(2)(a), the provision relating to ordinary course of business and so on, would that be a protection to the person who is carrying on a course of business with another?

MR KEANE:   Your Honour, obviously it would provide a degree of protection but these cases proceed on the footing that one does not address the question of whether the creditor can meet that onus unless there has been an effect of conferring a preference to start with.

TOOHEY J:   That is, no doubt, one way of looking at it.  I suppose the other way would be to see subsection (2), as it were, marking out the areas of exception, leaving what remains, perhaps, as capable of constituting a preference.  I accept that to put it that way probably does not do sufficient justice to the opening language of section 122.

MR KEANE:   And, your Honour, to put it that way might be to really deny the authority of the cases which have said one has to find a preference of this kind first before one deals with the question of whether the protective provisions can be successfully invoked by the creditor.  And, indeed, Richardson’s Case itself, for example, was a case where there was no question that those protective provisions could not be invoked, but there was still no preference.  There was no question that the bank knew that Mr Price, the solicitor who had the arrangement with the bank, was insolvent.

TOOHEY J:   Yes, thank you.

MR KEANE:   Your Honours, the final passage that we have set out from Richardson, which commences a bit below point 5 on page 4 of our outline, is important, in our respectful submission, not so much just from the point of view of onus, but for the point that is made:

To infer that at a point the bank obtained one ‑

a preference ‑

but that it was freely sacrificed by the spontaneous making of further advances by honouring cheques would we think be wrong.

When we come to the passage in the judgment of Sir Garfield Barwick in Queensland Bacon v Rees, one will see the theme taken up again that, where a payment is apt to continue a relationship of debtor and creditor, which will bring with it further supplies, the provision of fresh value by the creditor, one has what the American cases would refer to as a live relationship of debtor and creditor, not a relationship which is being terminated or being terminated pro tanto to the extent of payments which have the effect of reducing the indebtedness permanently.

Such a case was Rees v Bank of New South Wales.  That was a case where the Court held that, to the extent that the arrangement between the parties involved monthly payments by the debtor that would reduce the level of indebtedness, and to the extent that that result was achieved, there was a preference but no more.  Now, that result seems to have been reached almost by way of concession in the case, but it is clear from the reasoning that the concession was thought to be rightly made.  We have set out the passage from the judgment of Justice Kitto which supports, in our submission, the view that if one can see that the arrangements which are made exhibit a common business purpose of continuing a relationship involving the supply of fresh value by the creditor, one will not have a preference and that one does not decide the question by considering the immediate effect of the payment but rather it is the effect that it ultimately produces.

DAWSON J:   Do you accept that, that if, in fact, the payments were increased, as it were, so that at the time of the bankruptcy, the whole debt had been paid off, that there would have been a preference?

MR KEANE:   Yes.

DAWSON J:   But, if the opposite is the case and, in fact, the debt is increased by reason of the business being continued, you would say there cannot be a preference?

MR KEANE:   Yes, your Honour.  In the former case, one has the position where one can say that the payments produced ‑ ultimately produced, to use the language of Sir Frank Kitto ‑ ultimately produced a particular effect which reduced the indebtedness.  But, your Honours, even there, it would not be every payment.  It would be the cumulative effect of those payments.

DAWSON J:   Yes.

MR KEANE:   Your Honours, next we go to Queensland Bacon v Rees and we have set out another admittedly lengthy passage.  This is an important passage because, in subsequent cases, it has been accepted as authoritative.  One might think why would that be a surprise?  Sir Garfield Barwick differed on this point with Justice Menzies.  The other member of the Court, Sir Frank Kitto, did not deal with this point at all and in the result, Justice Menzies was in dissent.  In subsequent cases, the decision of Sir Harry Gibbs in Re Weiss and some other decisions which we have referred to but which we will not read to your Honours, the view taken by Sir Garfield Barwick was accepted as being authoritative and has been applied since.  We do not understand the Full Court to have taken a different view, notwithstanding the considerable reference to the judgment of Sir Douglas Menzies. 

We would invite your Honours to read the passage we have set out, emphasising, if we may, that this passage affirms that one can find the relevant connection between payments where there is no express arrangement that further supply should continue, and your Honours will have seen in the second half of the second paragraph, the point which his Honour there makes that an express arrangement to continue supply or on credit is not necessary.  At issue is whether the payment concludes rather than continues the relationship of debtor and creditor:

it is enough if, on the facts of any case, the court can feel confident that implicit in the circumstance in which the payment is made is a mutual assumption by the parties that there will be a continuance of the relationship of buyer and seller with resultant continuance of the relation of debtor and creditor in the running account, so that, to use the expressions employed in Richardson’s Case, ‘it is impossible’ ‑ I interpolate, in a business sense ‑ ‘to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed...’.”

Over the page, we have referred to a number of single Justice decisions where those statements of Sir Garfield Barwick have been accepted as authoritative.  In the next paragraph, we summarise the propositions which these judgments support:  firstly, that the effect of conferring a preference is the final or ultimate effect of the payment rather than its immediate effect, considered in isolation from other connected events, such as the ongoing dealings; and as to the sufficiency of the connection if fresh value from the creditor is a consequence, as a matter of business, of the making of a payment by the debtor, the final effect of the payment cannot be considered without taking into account that fresh value.

Your Honours, it is our submission that the Full Court’s treatment of the judgments does not give effect to this underlying conception and we submit, with respect, that the approach of the Full Court which relevantly commences in volume 6 at 1284 of the record, does emphasise legal formalities and, indeed, with respect, accounting formalities internal to a party in many cases at the expense of practical business considerations in relation to the likelihood the supply will continue if reductions in past indebtedness are made and will not, if they are not.

DAWSON J:   Are you going to deal with the effect of appropriating certain payments to certain months?

MR KEANE:   Yes, your Honour.  If we can just take your Honours, before we go to that, to 1284.  What the Full Court did is, after going through the facts in relation to the dealings between the parties, they conclude in relation to the proper inferences to be drawn from the primary facts about which there was no dispute between their Honours and Justice Lockhart at first instance, and their Honours, really from pages 129 to about line 9 on 132, express their conclusion as to why they disagreed with his Honour in relation to the character which these dealings have.  This is at 1284:

In our opinion, the facts show that, throughout the preference period, there did not exist between Compass and CAA what might be described, to adapt the language of Barwick CJ in Rees, current credit arrangements under which Compass reasonably could expect that so long as it paid accounts according to those arrangements, CAA would continue to provide services.

Your Honours will then see, as we apprehended, that their Honours explain why that is so and they do that, in the first case, by reference to the circumstance that there were payments of specific past indebtedness, the point that I think your Honour Justice Dawson was adverting to.  And they deal with that in the balance at page 1284.  Then over the page, 1285, they take up the entire transaction phraseology and exclude the dealings from a place under that rubric on the footing that:

There were a number of dealings, the occasion or necessity for which arose from (i) CAA’s statutory position as sole supplier of certain services required by Compass to operate its business, and (ii) the persistent failure after December 1990 of Compass to pay the charges to CAA under its trading terms as defined by or pursuant to statute.

Moreover, there was, in our view, no mutual assumption that CAA would refrain from exercising its remedies, including the imposition of statutory liens or that CAA would supply further services whilst Compass remained delinquent in its payments to CAA:  CAA did not so conduct itself that Compass reasonably could expect that CAA would provide further services so long as periodic reductions were made in a “general debit”.

Your Honours, we think there must be considerable significance attached by the Full Court to the notion of general debit there as there was on the proceeding page, because when one looks at the facts, both as found by the learned trial judge and in review by their Honours, there cannot be any doubt that pervading the dealings before and during the preference period, that payments were required as a condition for the CAA not to take steps which would have had the result of putting Compass out of business and ceasing further supplies.

Similarly, when one looks at those dealings, there cannot be any doubt, in our respectful submission, that both sides wanted the relationship to continue, that both sides were eager to continue the relationship, and there cannot be any doubt either that in so far as Compass stayed in business, the CAA would have been happy to continue to supply services to Compass, and there cannot be any doubt that Compass would have had to go to the CAA for those services.

If we can just your Honours to the balance of what is on 1285, because it seems, in our respectful submission, to contradict what goes before, unless it is the reference to the general debit that makes the difference, unless there is some particular quality in this concept, or this distinction between payments to a general debit and payments of specific past indebtedness.  As one sees at about line 21 on 1285:

Compass continually gave undertakings to CAA to clear the arrears and to pay new debts as they fell due.  From time to time, Compass offered to provide security to CAA.  But it also made it plain to CAA that it regarded the oil companies and the FAC as creditors whose claims to payment were more pressing than those of CAA.

And there is a reference to a particular conversation which was a vivid reminder of that:

For its part, CAA regarded itself, in the light of the legal advice it had received, as uniquely handicapped by its statutory obligations.  These were considered to require CAA not to withhold provision of services, other than on “safety issues”, even to a recalcitrant debtor.  Alternative measures, including the imposition of liens, were considered from time to time and eventually on 28 November and 18 December these measures were applied.

CAA also perceived that, if it pressed Compass too hard, this would embarrass the Executive Government by reflecting adversely upon the success of the government’s deregulation policy.

Their Honours continue in that vein to the bottom of the page and over the page:

There was also, as appears, for example, from the letters of 31 October and 7 November, indications within CAA that it should “assist” Compass through its cash flow crises, and keep the matter away from “the public arena”.  As early as May 1991, before the preference period commenced, CAA had been very anxious as to the possible repercussions of public revelation of the state of account of Compass, and of the methods adopted by CAA in dealing with the situation.

With the greatest respect to their Honours, all that reflects is an eagerness on the part of the CAA to continue to supply, but not on the basis that they are not paid.

McHUGH J:   But it also has to be balanced against CAA’s statement of policy that it had to be fair to the business rivals of Compass as well.

MR KEANE:   Quite, your Honour, and that was the other thing we wish to say, is that in the Full Court’s review of the facts, with the greatest respect, that particular balancing consideration seems to have been lost sight of, and we do want to take your Honours to a couple of passages in the evidence where that consideration is pointed up. 

In relation to the point that there cannot be relevantly a running account, to use the convenient shorthand, where there is a payment not to a general debit but in respect of specific past indebtedness, we want to take your Honours to some of the passages in the judgments which suggest that that does not matter.  In particular, some passages in Queensland Bacon v Rees but, more importantly, two decisions of the Queensland Court of Appeal recently, which are cases of payments in respect of specific past indebtedness where the Court has held that that particular consideration does not deny the applicability of the running account conception, does not deny the existence of a sufficient connection between the payments and the provision of further value for the purposes of leading to the conclusion that the payments do not produce a final effect in the relationship between the parties of preference.

Before we go to those judgments though, may we take your Honours to some of the evidence, and we will do that quite briefly, of the dealings between the parties, because this evidence shows that his Honour was correct to conclude that the parties proceeded both before, at the beginning of and during the preference period on the clear basis that it was in both sides’ interests for the relationship to continue and that this would not be so if payments were not made.

The Full Court did not controvert that finding, or that holding, perhaps we should call it, by Mr Justice Lockhart which your Honours will find in volume 5 of the record at page 1137, lines 10 to 15, that if the payments had not been made, the appellant would have imposed the liens and this would have caused Compass to cease trading.  That conclusion was not, as we say, controverted; it was correct.  We should also refer your Honours to 1138 while your Honours have volume 5 there, lines 7 to 10:

Both the Authority and Compass dealt with each other on the basis that the imposition of statutory liens would be likely to bring the business of Compass to an end.

Your Honours, the Full Court referred to most of these particular pieces of evidence, but there are a couple of examples which were not noted by them in relation to this particular finding which, in our submission, confirm the correctness of Mr Justice Lockhart’s conclusion of the basis on which the payments were made throughout the period.  Can we take your Honours to his Honour’s judgment, that is to say, Justice Lockhart’s judgment, in volume 5, firstly at page 1096, lines 9 to 25.  This, of course, your Honours, is before the commencement of the preference period, but it bears upon the parties’ mutual expectations, bears upon the basis on which they dealt with each other:

On 7 March 1991 Mr Beer informed Mr Baldwyn -

Mr Beer is an officer of the CAA -

the Chief Executive of the Authority, that payment of the January charges had not been received and that his policy would be that if Compass were to default for more than two months (that is two months after the 28 day penalty free period) the Authority would impose liens on its aircrafts, and that he would obtain in writing from Compass its proposal to repay the debt.

On 11 March 1991 Mr Beer wrote to Mr Grey of Compass informing him of this policy of the Authority in relation to liens and penalties and that the Authority required satisfactory arrangements to be entered into to clear overdue payments within a reasonable time.

On 19 March 1991 Mr Jeffrey, the Company Secretary of Compass, replied to Mr Beer’s letter of 11 March in which he said that any action (that is the imposition of liens) would “jeopardise our commercial relationship with Monarch Airlines Limited, the aircraft lessor”.

Then, your Honours, the passage at 1097, the reference to the letter of 22 March from Mr Beer to Mr Jeffrey, the text of which is excerpted there and, in particular, the passage at 18 to 30 where Mr Reynolds of Compass “wrote to Mr Hannink” of CAA giving him “a detailed explanation of the failure of Compass to pay the charges” that were then outstanding “and proposing deferment”, Mr Reynolds said:

“However we do request that a lien not be placed on the aircraft as this will be commercially disastrous for us and we believe that as long as our lessors are kept informed of this situation then, as this is documented, there is no necessity to exercise this discretion under your legislation.”

Your Honours, can we just note that the passage at lines 18 to 30, which reflects Compass’ appreciation of the effect of the imposition of liens was not noted in the reasons of the Full Court when they dealt with this point, and if we can just give your Honours a reference to where your Honours will find it in volume 6.  It is at volume 6, 1234.

McHUGH J:   Was the register of liens a public document?

MR KEANE:   Yes, it is, and it was also open to lessors to ask for certificates as to amounts owing in relation to which liens which might be imposed.

McHUGH J:   Yes, and a lien can only operate on any amount in the certificate and not.....  Was there any evidence as to what effect publicity would have on forward payments of flights?

MR KEANE:   Your Honour, I think there is a reference in one of the dealings to the effect that that sort of adverse publicity would be likely to have an adverse effect on forward bookings.  I think, perhaps, it was probably in rather more general terms than that, just on their total business rather than forward bookings, in particular.  We will try and find that for your Honour.

TOOHEY J:   Are you taking us to the question of liens at the moment, Mr Solicitor, to give effect to your primary submission or are you, at the same time, touching on what seems to be an independent argument that the capacity to impose liens, of itself, is a reason why preference should not be held to have taken place?

MR KEANE:   Your Honour, probably both.  Justice Lockhart dealt with the ‑ ‑ ‑

TOOHEY J:   Perhaps to save time I could explain why I am asking you at this stage.  Does the independent argument, if there be one, in relation to liens, apply in respect of any individual payment ‑ ‑ ‑

MR KEANE:   Yes.

TOOHEY J:    ‑ ‑ ‑ and is not caught up in the other argument that there is a running account.

MR KEANE:   No.  It is independent, your Honour.

TOOHEY J:   Yes, thank you.

MR KEANE:   But, for the present purposes, we are really directing our attention to the point that but for payments, liens would have been imposed and trading would have ceased.  We have particularly in mind the notion that the Full Court seemed to think that the running account principle could not apply because there was an apprehension by some officers of the CAA that they could not refuse to continue to supply services.  That is not an accurate reflection of the state of the evidence, and the Full Court do not seem to have regarded that proposition as more than arguable, although they do seem in the passages we have taken your Honours to to come to a view that because of that perception, one cannot characterise the relationship as proceeding on the footing that payments are made to ensure continued supply, and the continued supply will not continue if payments are not made.

We have it in mind that since it was always explicit as between Compass and CAA that if Compass did not pay, liens would be imposed, and that was well appreciated on each side as having the inevitable consequence of putting Compass out of business and, hence, necessarily ceasing trading.  It is relevant to that point as well.  Your Honours will have seen at 1234, lines 6 to 18, there is not a reference to the appreciation reflected in Mr Reynolds’ letter to Mr Hannick in the judgment which we have just taken your Honours to.

Before we go to the next passage in the judgment of Justice Lockhart, can I respond to the question your Honour Justice McHugh raised with us earlier in relation to the evidence of the likely consequences in terms of bookings and so forth?  In volume 1 at page 217, there is a memorandum dated 18 April 1991 from Mr Beer to Mr Baldwin.  It is an internal memorandum but it reflects conversations which have occurred between Compass and the CAA.  At 217, about line 12:

The normal course of action would be for the CAA to raise statutory liens on the Compass aircraft.  Compass has, however, sought our agreement not to take such action on two grounds:

-  the creation of liens would be public knowledge, which Compass sees as disastrous for their commercial image, probably leading to significant loss of passengers, and

-  the creation of liens would prejudice their position with regard to Monarch airlines, the lessor of their aircraft.

McHUGH J:   I think that passage appears somewhere in the Full Court judgment.

BRENNAN CJ:   Page 1235.

MR KEANE:   Yes, that is so, commencing at about line 16.  Thank you, your Honour.  In relation to May 1991, in the judgment of Justice Lockhart, the reference at page 1100, lines 1 to 15, and your Honours would have seen in the judgments that there was, at the end of May, an arrangement reached whereby some post-dated cheques were provided to clear the then indebtedness.  If we can take your Honours to the actual letters that were exchanged in that regard.  They are in volume 2, page 327, there is the letter from Compass dated 28 May 1991.  Can we draw your Honours’ attention particularly to the paragraph that commences at line 15:

In consideration for this undertaking -

that is, to make the various payments -

it is understood that the CAA will not invoke its powers under part vi, division 2 of the Civil Aviation Act, while Compass has honoured these undertakings.

That includes the liens power.  At page 333, a facsimile transmission to Mr Beer of the Authority from Mr Reynolds of Compass of 29 May following up that letter:

Graham,

Deposit has been made as promised.  I will be extremely disappointed if you do not proceed with the latest proposal as there is no way we could continue without CAA agreeing to the last paragraph of our undertaking.

Then, your Honours, going back to the judgment of Justice Lockhart in volume 5 in relation to dealings in July 1991, page 1100, commencing at line 20 and going over the page to 1101, about line 8.  In relation to August 1991, at 1101, about line 12, Mr Beers facsimiled Mr Reynolds.  So far as September is concerned, can we take your Honours to the Full Court’s judgment, volume 6, at 1250 lines 1 to 11, where:

on 20 September, the representatives of CAA advised Reynolds that failure to pay any future invoice before the fifteenth day after the penalty free period would trigger debt recovery action in the form of imposition of liens or other action.

Then in relation to October 1991, can we ask your Honours to go back to volume 5 to 1102 at line 20, at the bottom of the page:

Mr Reynolds sent a facsimile to Mr Mayoh of the Authority indicating that Compass was not able to pay its July charges on 2 October as previously promised.  On the same day Mr Baldwyn sent a facsimile to Mr Grey of Compass stating:

“In view of your recent record, there is no reason why we can continue to accept your undertaking.  It is therefore our intention to take additional moves to protect the debt owing by Compass to the CAA.  This could include liens being placed on your aircraft within the next 48 hours and/or other options such as the refusal of air traffic services”.

Then there is a reference to a meeting on 3 October.  I invite your Honours to read to the bottom of that page and then, your Honours, over to 1104, an important exchange of communications which is not referred to in the judgment of the Full Court, the whole of page 1104:

On 7 October 1991 Mr Baldwyn sent a facsimile to Mr Grey stating that, if the balance of the July account of Compass was not paid on 8 October, the Authority would have no option but to secure its debt by way of liens or some other equally protected method; and that if the August account was not paid in full with interest by 16 October it would act in the same way.

Importantly:

On 7 October 1991 Mr Grey sent a facsimile to Mr Baldwyn stating, inter alia:

“It is not our intent to be out of step with government agencies, particularly those that have the ability to close this operation down . . .  Before any of the threats contained in your letter are activated, I would seek assurances that I would have the opportunity of discussing such matters with your Chairman and the Minister for Transport and Communications”.

Then there is a reference to the reply in which Mr Baldwyn said:

“We have a responsibility to obtain security for overdue debts so that we do have some protection.  We sincerely hope that we will not have to exercise such security rights - but for substantial overdue debts it is good business practice to secure our debt.  The best way to prevent such a need is to have debts paid on time.

If Compass are not able to pay the debt within 45 days of invoice, what security will Compass be prepared to offer the CAA to cover such a debt?  A usual course for security is to take a lien over the over the aircraft; but for reasons you have not specified, you say that this is unacceptable to Compass.  What alternative security is your company prepared to offer?”

Then on 1105 there is the passage at 8 to 16 where the explanation as to the concern is repeated.  Line 12:

“because as you are aware, this will trigger off clauses in our lease agreements which could have the aircraft repossessed immediately”.

Next, there is a meeting of 25 October which is referred to at 1106.  The meeting is referred to in the first paragraph of the page and an exchange of correspondence in the second paragraph.

BRENNAN CJ:   What is all this designed to show, Mr Solicitor?

MR KEANE:   That it was explicit as between Compass and the Authority that if payments were not made to the satisfaction of the Authority, action would be taken which would have the effect of bringing Compass’ business to an end, that both sides well understood that.  Both sides well understood that continued trading was conditioned on payment of the outstanding indebtedness.

BRENNAN CJ:   Of some outstanding indebtedness.

MR KEANE:   Yes.  We do not wish to labour it beyond that.  Can we just give your Honours the next references as quickly as we may?  At 1107, commencing at line 11 and going to line 32, where Mr Baldwyn says to Mr Rice, the Chairman of Compass:

It also needs to be said that in making the above arrangements for Compass, the CAA are going out of their way to assist Compass through their cashflow crises.  It is in all our interests to keep Compass in business.”

We mention that because the Full Court did not refer to the text of the letter from Mr Baldwyn to Mr Grey.  As to November 1991, can we take your Honours to 1109, lines 8 to 25, and can we mention that while the Full Court refers to the letter of 29 November in its reasons at 1277, lines 5 to 10, it does not note what is at page 1109, lines 15 to 25, which is a repeat of the refrain which we have seen earlier.  At the bottom of the page:

“Well, we have acknowledged that the point that it is both our interests to keep Compass flying and we have said that, and I have said that to you in my letters.  That’s why we have been out of our way, and I have got to say we have gone out of our way in commercial terms to accommodate your cashflow problem.”

Your Honours, it is our submission that this course of dealings does show that the payments were a condition of further business between the parties; indeed, it was a condition of further business by Compass at all, not a pro tanto extinguishment of the relation of debtor and creditor, and in paragraph 7 of our expanded outline, we refer to the passage from Richardson which suggests a test of this in a sort of rule of thumb way, that whether the provision of fresh value as a consequence of the payment can be tested in the case of regular debits and credits by asking whether the payments conferred an advantage which was freely sacrificed by the spontaneous provision of fresh value.  In other words, was there a closed transaction and then a subsequent transaction, or are they properly to be seen as a continuing live relationship of debtor and creditor? 

In paragraph 8, we refer to the approach which the Full Court took to, in our submission, wrongly narrowing the scope of the current account principle in the way in which we have set out in (a) and (b).  We would submit that the circumstance that there is a reluctance to supply or a reluctance to commit indefinitely has nothing to do with the question whether, as a matter of business, one does and, indeed, one can say that in some cases, a creditor may well be over a barrel in the sense that he must continue to supply in order that the debtor can continue to trade and pay.

TOOHEY J:   That would be a fairly familiar situation, would it not, and putting aside the independent argument based on liens, what singles out this particular case from any series of transactions between wholesaler and retailer, or retailer and customer, which goes on for a period of time and is associated with payments made from time to time, threats to take action, threats to issue a bankruptcy notice, and so on?

MR KEANE:   Your Honour, can we say, first of all, that in such a case, in such an ordinary case, we would not accept - I do not know if I am attributing to your Honour a premise that was not intended, the question that was not intended - that in such an ordinary case, the current account principle would not apply.  Where there is uninterrupted trading with debits and credits but no improvement in the position of the creditor in terms of that indebtedness, our submission would be that, in such a case, the principle does apply and there is no preference.

DAWSON J:   Of course, what would happen would be, very often, that the supplier would insist on cash on delivery.

MR KEANE:   And we have what is referred to as the homely example in Richardson’s case.  For purposes of determining whether there has been a preference by reason of the payment, why should the position be different as their Honours ask rhetorically?  Why should the position be different where you have traded on cash on delivery as opposed to accepting a payment in respect of present indebtedness and advancing fresh value?

McHUGH J:   But does that throw up the question as to whether or not the whole idea of the running account concept should not be buried because either you have got to apply it to the extreme cases - although the Full Court seemed to have relied on the distinction between payments of particular past debts and, in general, indebtedness, I would have thought that it is the payment of particular past debts that epitomises this sort of situation and, quite frequently, they are months behind.  In December, they say, “Well, look, as long as you pay your July debt, we’ll give you further credit”, but it really throws up the question as to whether this is a satisfactory doctrine, does it not?

MR KEANE:   Your Honour, can we say a few things about what your Honour has put to us?  The first thing we would say is what your Honour says about “payment of something off in respect of last June’s account is a condition for our continuing to deal with you is”, it is the classic case.  Keocalzaturificio is plainly a case of a particular past indebtedness case.  CSR v Starkey, Hastings Deering v Starkey, which we referred to in paragraph 11 of our extended outline, are such cases.  Queensland Bacon v Rees, it would appear, certainly in the observations of Sir Garfield Barwick, he would regard the payment of particular past indebtedness as being clearly within the scope of the doctrine.

So in so far as particular past indebtedness is concerned, the authorities suggest that that does not take one outside the scope of the Authority.  In so far as your Honour says, “Well, doesn’t that show that the doctrine should be rejected in terms of policy”, might we say, with respect, that there seem to be two themes, two policy themes which inform the preference recapture provisions of the Australian legislation as they inform the preference recapture provisions of the American legislation.  They are equity as between creditors and the desirability of not encouraging the unseemly race to the court house to wind up a struggling debtor.

DAWSON J:   That may be an explanation - a partial explanation - but the end question is whether this particular creditor gained an advantage in winding up over other creditors, whether they were disadvantaged and he was advantaged, and that must be the ultimate question.  It is really a question of fact, is it not?

MR KEANE:   Yes, it is, your Honour, and that it is the ultimate question and that is the question that the statute poses.

BRENNAN CJ:   That really raises, to come back to Justice McHugh’s question, the issue of whether the so-called doctrine of “running account” is really to be regarded as a doctrine or whether it is simply a manifestation of a particular application of section 122, because if you regard it as a doctrine, how do you account for the fact that it does not cope with the case where there has been payment in excess of the credit subsequently given?

MR KEANE:   We accept what your Honour says, of course, that as Sir Garfield Barwick said, this is a tag that is used to assist in directing attention to, or to assist in giving effect to, the language of the statute.

BRENNAN CJ:   Start from the statute.  The question is, what property is divisible amongst the creditors, and this provision is in aid of enhancement of that property.

MR KEANE:   Yes.

BRENNAN CJ:   So it is the creditors to whom that property will be distributed who are the body of creditors in respect of whom preference or otherwise is to be found.  So if that be right, it is at the time, which you have said earlier, I think - at the moment of liquidation or bankruptcy that the question is to be posed and then, if looking back, it is to be seen that there has been an advantage acquired by reason of the dealing past, then it has to be brought to account.  If there has been none, then nothing has to be brought to account.

MR KEANE:   If there has been an advantage?

BRENNAN CJ:   Yes.

MR KEANE:   If that creditor has been advantaged by the effect of a payment which is why ‑ ‑ ‑

BRENNAN CJ:   By the effect of the relationship between himself and the creditors.

MR KEANE:   Yes.

BRENNAN CJ:   The debtor, at least, unless one can isolate a transaction as being a transaction in respect of which there is a specific past debt and a specific past payment which amounts to a preference, considered in isolation as a matter of fact.

MR KEANE:   Yes.  It is about elucidating the operation of the statute which speaks of effect, meaning ultimate effect, and which says, and which proceeds on the basis suggested by the authorities, that one does not regard an effect which is necessarily only temporary as having the effect of which the section speaks, where ‑ ‑ ‑

BRENNAN CJ:   The temporary effect is irrelevant to the operation of the section.

MR KEANE:   Yes.

BRENNAN CJ:   I am not saying that is right, I am just putting it forward as a proposition, Mr Solicitor?

McHUGH J:   In a sense, the legal doctrine really turns the commercial reality on its head.

BRENNAN CJ:   Quite?

McHUGH J:   Because what happens, in effect, is that the wholesaler says, “Look, I will give you credit for January if you will pay last June’s debt”.  That is what actually happens, that goods next month, provided you pay three months ago, or whatever the date is, so it is the provision of new credit and the payment of an old debt.  That is the way the trader looks at it or the commercial parties look at it.  The legal doctrine tends to look at it in a very different light.

MR KEANE:   Well, save though, your Honour, one is really concerned with whether the payment has had the effect of advantaging a creditor or not; whether there has been that advantage.  Where one can see that the creditor has not been advantaged by that payment because it was part of a live continuing relationship of debtor and creditor which continued to flourish, one cannot say that at the end of the six months, or whatever period, that there has been that advantage and one is the less inclined to say that when one bears in mind that the policy of these provisions is to achieve equality between creditors and the effect of not having a doctrine, not having an approach, not understanding the words effect as the cases suggest they should be understood is to effectively make the creditor pay twice, even though he has not been advantaged to the extent of the payments he has received over other creditors because he has continued to deal.

TOOHEY J:   That troubles me somewhat.  You say there has been no advantage by reason of the payment.  In one sense, there clearly has been if one creditor has been singled out for payment but you say that creditor has not been advantaged because of the relationship which involves the supply, in this case, of further goods.

MR KEANE:   Yes, further services.

TOOHEY J:   Or services.  It is all a bit circular in a way, is it not?

MR KEANE:   Well, no, with respect.  One can see, I think, without circularity, if one looks at the results here that if the appellant were to be required to refund the 10.3 million received in the course of the trading period, if one looks at the results of that trading, one sees the indebtedness grow from 4.3 million to 12.9 notwithstanding the 10 million‑odd that was received.  So that the effect of the payments was not to advantage the appellant over other creditors by 10.3 million, in the sense of seeing the debt reduced by that amount while other creditors remained unpaid, the overall effect of the payments was that the appellant was disadvantaged to the extent of about $8 million.

The effect of the Full Court’s judgment is to look back from the bankruptcy and say that the Authority was ultimately advantaged by each payment irrespective of the continued service provision.

DAWSON J:   You are really just substituting one piece of indebtedness for another, are you not?

MR KEANE:   That is right, because one has a live relationship.

DAWSON J:   And you cannot say that is a preference or an advantage.

MR KEANE:   No.

McHUGH J:   That depends on whether or not they would have continued to supply or provide services, does it not?  Supposing that you had not received any payments in that period but you had provided the service.  You would be disadvantaged as opposed to FAC which was paid monthly.  During the six month period, FAC had the use of the funds of Compass.  Between you and FAC, you would be prejudiced in that sense because money that should ultimately go to both organisations has gone only to one.

MR KEANE:   That would not be the case though, your Honour, if the situation was at the beginning of that period of six months continued trading FAC were owed $1 million and at the end of the period they were owed $2 million.  It could not be said that they were advantaged by continuing to deal where ‑ ‑ ‑

McHUGH J:   I got the impression from the evidence that FAC got paid on the spot.

MR KEANE:   Your Honour, I am not dealing with what actually did happen, I am dealing with what I thought was a sort of a hypothetical example and simply making the point that one cannot say that where you end up worse up for having dealt that you have been advantaged in comparison with other creditors.

Can we take your Honours to paragraph 11 of our expanded outline.  We make the submission that the Full Court’s approach is reminiscent of the approach rejected in Queensland Bacon v Rees and can we refer your Honours particularly to the passage at page 284 in 115 CLR.  This is unfortunately not a passage we have had excerpted.  We have to ask your Honours to go the volume.  At page 284, the first full paragraph of text on the page, having referred to the passage from Richardson’s Case that was earlier cited to your Honours, his Honour went on:

These expressions were guarded and appear to cover two different types of situation; one in which the payment is part of a larger single transaction and the other where the payment, though in discharge of a specific and identifiable indebtedness, is none the less linked in some fashion with other items in what is described for want of any more precise nomenclature, as a “running account”.  But though guarded they do indicate that the mere fact that the payment is in discharge of an existing or past indebtedness is not enough to require in all circumstances that the effect of the payment vis‑a‑vis other creditors and their claims is to be estimated in complete isolation.

In the two cases in Queensland that we have referred to, CSR v Starkey and Hastings Deering v Starkey, I will hand to your Honours copies of each of those decisions.  Hastings Deering v Starkey is as yet unreported, we think.

If we can take your Honours firstly to CSR v Starkey.  This case was plainly a case of payments of specific past indebtedness.  That that is so is apparent from the recital of the facts in the joint judgment of the President and Justice Mackenzie at page 322, the second page of the photocopy.  Your Honours will find at about line 40 there was a payment of the total of the August invoices which had the effect of reducing the indebtedness as at October to a bit more than a quarter of a million dollars:

Further concrete was supplied.....and, by 20 November, 1986, the company was indebted to the appellant in the sum of $369,443.81.  On the following day, 21 November, 1986, the company made a payment of $113,648.23 to the appellant, probably being the total of the September invoices.

And their Honours go on to identify that the specific payments are made in respect of specific invoices at 323, down to line 30.

At the bottom of 323, just above line 50, their Honours refer to:

The appellant’s sole contention on this appeal is that the extent of the “preference, priority or advantage” which it received is limited to the difference between the company’s indebtedness prior to the payment which it made on 20 October 1986 and its indebtedness on 12 April 1987, an amount of $190,190.97.  For this submission it relied on what has been described as the “running account principle”: see Starkey v APA Transport Pty Ltd.  The fairness of such a result is obvious; during the critical period, the appellant supplied the company with concrete valued at $464,465.63 which resulted in commensurate benefit to the general body of its creditors.  However, the respondent argued that the requirements of the “running account principle” were not satisfied.  The basis for this submission was the following passage in the judgment of the trial judge:

DAWSON J:   But here the lien was never given up.

MR KEANE:   The lien was not imposed, save for a brief period when it was put on and then removed.  Here the point was, as with Mavor, where the right to distrain was given up, here the right to impose the lien was not exercised.

DAWSON J:   It was not given up.  It remained and eventually was exercised.

MR KEANE:   Except, your Honour, in terms of the payment that was made it refrained from exercising its right because of the payment in return for the payment, and in that sense it is the same sort of case as Mavor and the lease case, Discovery Books.  Can we hand your Honours copies of Mavor v Croome and Discovery Books.  Your Honours will see in the report of Mavor v Croome reference to the earlier decision of Lord Ellenborough in Stevenson v Wood.  That decision is referred to in turn in Discovery Books by Justice Fox in the other photocopy we have handed to your Honours at page 479, where at the top of the page his Honour refers to:

The power to distrain gave it the right to become a secured creditor, pro tempore, and, of course, the sale of goods on the premises, under a distress, could have been quite disastrous to the continuation of the company’s business.  It is interesting to note in this connexion the decision of Lord Ellenborough in Stevenson v Wood, in which rent paid under threat of a distress during the period of relation back was not recoverable by the assignee in bankruptcy from the landlord.  His Lordship is reported as saying:  “The landlord has by law a right of distress; he has a legal lien on the bankrupt’s goods, unconnected with the bankruptcy; if he thinks fit to waive that right, and accept of the rent from the assignees, who may be benefited by having the goods, without being sold under the distress, the landlord should not be placed in a worse situation than if he had made an actual distress; it would be a fraud on his legal rights to hold otherwise.  The defendant has, therefore, a right to hold the money which under those circumstances he has obtained.”

So that there was the non-exercise of a right valuable to the authority, the effect of which is, in our submission, to lead to the conclusion that the payment in return for the non-exercise of that right is not a payment relevantly preferring a creditor over other creditors to the extent that the creditor is advantaged because of the other rights he has, not simply his right as a creditor.

In the alternative, your Honours, if the imposition of the liens would not have caused the lessors to terminate the leases of the aircraft so that Compass could have continued trading, then the liens would have secured property valuable to Compass, that is its continuing leasehold interest in the aircraft necessary for its business.  Now, your Honours, we accept immediately that that finding is a finding which we would not submit your Honours would make but it seems to us, with respect, that it is the other horn of the dilemma on which the liquidators are placed.  If it be the case that trading would have continued notwithstanding the imposition of

liens, then by reason of non-exercise of the right to impose them there was ‑ I am sorry, a decision to impose them would have secured property valuable to Compass, if it be relevant to ask was there valuable property of Compass, rather than property valuable to the Authority which might have been subjected to the liens.

TOOHEY J:   Does this involve any sort of equation between the value to be secured by, in this case, the lien and the outstanding debt or is it enough that there be some value?

MR KEANE:   No, your Honour, it is enough, in our respectful submission, that there was a payment in return for the right, or the non-exercise of the right.

TOOHEY J:   Was this point argued before the Full Court?

MR KEANE:   Yes, it was, your Honour.  It is not dealt with in their Honours’ reasons.  Unless your Honours have something for us, those are our submissions.

BRENNAN CJ:   Thank you, Mr Keane.  Mr Jackson, how long do you expect your submissions to take?

MR JACKSON:   Your Honours, I think I will be about two hours.  Some of it we will endeavour to put in written form, but I will still have to go through it.

BRENNAN CJ:   Do you have an outline of your submissions?

MR JACKSON:   Yes.  I give your Honours copies of our outline of submissions.  Could I mention in relation to it three documents are referred to in it.  I am happy to give them to your Honours now or tomorrow, whichever your Honours prefer.

BRENNAN CJ:   You may as well give them to us now, Mr Jackson.

MR JACKSON:   Could I indicate what they are as I am doing it.  The first concerns a document which was part of the evidence of the trial that is not in the record.  It is the liquidator’s report on solvency.  The reason for handing it to your Honours may be seen from the outline of submissions in paragraph 3.  The second document relates to the question of the payments made by Compass and it endeavours to summarise the evidence and give references in the appeal book before the Court to demonstrating rather more strongly than perhaps the Full Court put it that the payments made by

Compass were made to satisfy specific past debts and get rid of obligations in relation to penalties for them.  That is the document referred to in paragraph 6(b) of the outline of submissions. 

The third document concerns what we have called in Part C on page 7 of the outline of submissions “cross‑appeal”.  We have endeavoured to put our submissions in relation to that in the third document I will give your Honours.  The reason why I put “cross‑appeal” in inverted commas is that the notice of cross‑appeal, your Honours, perhaps, in an enthusiasm, we would say, with respect, seeks special leave in relation to it.  We will be submitting we do not need special leave.  We simply seek to maintain the judgment in part. 

BRENNAN CJ:   Thank you, Mr Jackson.  The Court will adjourn now until 10 am tomorrow.

AT 4.34 PM THE MATTER WAS ADJOURNED
UNTIL TUESDAY, 24 OCTOBER 1995